As you grow older, the number of financial responsibilities you have increases. The monetary obligations you incur may also increase as you marry and have children. Additionally, inflation may also play a huge role. Therefore, the life insurance plan you choose should be able to deal with such situations and provide sufficient term insurance benefits to ensure that your family lives a financially secure life even in your absence. This is where an increased term insurance plan comes into view. Unlike a regular term plan, the sum assured of an increasing term insurance plan grows by a certain amount every year during the policy duration. Let’s learn more about it below.
Features of an increased term insurance plan
An increased sum assured term plan will usually have the following features:
A uniform increase in the sum assured
As the name suggests, the sum assured increases in this term plan. However, the manner in which the sum assured increases may differ from insurer to insurer. The policyholder is permitted to fix the increment percentage when they are buying the policy. For instance, the base sum assured of an increasing term insurance policy is Rs. 30 lakhs and the policyholder has chosen an increment percentage of 5%. In this scenario, the sum assured will increase to Rs 31.5 lakhs in the second year, Rs. 33 lakhs in the third year, and so on.
Whether the policyholder wants to buy an online term plan or an offline one, they should finalize the increment percentage depending on their financial goals, budget, personal monetary needs, and so on.
The increment may cease after a certain point
After a certain point during the policy duration, the sum assured may become static. This occurs when the sum assured has reached the maximum amount, as initially decided by the policyholder and the insurer. Regardless, the plan continues to be valid until its maturity.
The premium remains constant throughout
One may think that because the sum assured increases each year, so will the premium. But that is not how an increasing term insurance plan works. The insurance company takes the yearly increment into consideration when formulating the premium for the policyholder. As a result, though this premium is usually higher than the premium of a regular term plan, it does not increase throughout the policy duration. The higher premium leads to better and more rewarding term insurance benefits in the long run.
Benefit payout is dependent on the prevalent sum assured
If the life assured passes away during the policy duration, the nominee/s receives the amount that has been accumulated after the last increase in the sum assured. So, let’s assume the sum assured in the 19th year of the policy was Rs. 40 lakhs and it increased by 10% in the 20th year. The life assured passes away during the 20th year; the nominees in this scenario would receive Rs. 44 lakhs as the sum assured.
If the life assured passes away in the years after the sum assured has stopped growing, the nominees receive the amount corresponding to the sum assured after the last increment in it.
Should you buy an online term plan that offers increasing sum assured?
Looking at the following benefits of this type of term plan can help you better understand whether it would be a good product for you:
Helps you prepare for inflation
When planning your future finances, the role of inflation should never be underestimated. The increased sum assured term plan ensures to a great extent that no matter what uncertainties life throws, your loved ones are financially protected, and that inflation is taken care of.
Tax benefits are available
If you are concerned with the relatively higher premium of an increasing term insurance plan, then you may be relieved to know that you can gain tax deductions against the premiums you pay. The maximum tax deduction you can receive is Rs. 1.5 lakhs. Do get a full picture of the relevant tax laws before you go ahead with the same.
Allows you to keep a steady budget
Since the premiums are constant throughout, you do not have to worry about keeping an increasing amount aside for your term plans. This ensures that you have a steady budget for your insurance plan.
As the cost of living increases, one must take all efforts necessary to secure their finances from the uncertainties of life. We hope the information provided here helps you to achieve the maximum term insurance benefits.
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